CLINTON TAX PACKAGE: SACRIFICES NOW, PROSPERITY LATER

                         Roanoke Times
                 Copyright (c) 1995, Landmark Communications, Inc.

DATE: SUNDAY, February 21, 1993                   TAG: 9302210356
SECTION: HORIZON                    PAGE: F-1   EDITION: METRO 
SOURCE: By BOB DEANS COX NEWS SERVICE
DATELINE: WASHINGTON                                LENGTH: Long
CLINTON TAX PACKAGE: SACRIFICES NOW, PROSPERITY LATER
The economic jump-start Candidate Clinton pledged last fall has arrived as a low octane kick in the tires to help keep the recovery from stalling under the weight of a staggering tax increase.
In effect, the White House has decided to sacrifice some economic growth over the next two years in the hope of strengthening the economy for improved performance down the road, reversing 12 years of live-for-today borrowing.
"You absolutely had to make these kinds of deci- sions in order to eventually realize stronger growth in the future," said White House budget czar Leon Panetta.
Panetta, director of the Office of Management and Budget, said the economic stimulus package is meant to provide "a cushion with respect to some of the [economic] impacts that would take place," because of the tax increases his boss called for last Wednesday.
The president proposed tweaking the $6-trillion economy this year with $30 billion worth of targeted tax breaks and increased public works spending.
But the $267 billion in tax boosts he called for over five years would come from the pockets of consumers and the treasuries of companies large and small, diminishing - at least in the short term - their ability to purchase goods, invest in growth and create new jobs.
And those increases don't include the billions more the president must seek at some point in the future to fulfill his pledge to provide health-care insurance for the 37 million Americans who are not covered.
One analyst likened the stimulate-and-tax effort to giving an airplane extra fuel for take off, then promising "to shoot it with a heat-seeking missile" once it gets aloft.
"I don't know how you speed up an economy when you increase the tax burden," said the analyst, David G. Shulman, chief equity strategist at the New York investment house Salomon Brothers Inc. "I don't think the stock market will like it."
There's something for almost everyone to dislike in Clinton's package.
Anyone who drives a car, flips on a light switch or cooks a meal will be asked to chip in to pay a proposed energy tax the White House reckons will take in $71.4 billion over the five years from 1994 until 1998.
"The energy tax becomes the new cash cow for the federal government," said former Congressman Hal Daub, now a tax attorney with the accounting firm Deloitte & Touche.
A group including the Edison Electric Institute, the electric utilities' trade association - it includes as members some of the country's largest energy users and producers - already has protested the energy tax. The group told the president by letter that the tax would "raise the cost of U.S.-based industrial production, making us less competitive," and costing jobs from the farm to the factory floor.
Other analysts are worried about Clinton's proposal to raise income taxes and corporate taxes by a total of $240 billion over the five-year period.
"They [the increases] could greatly slow down economic activity," said an economist with a Washington-based business group. "The tax increases cut people's income, it discourages people from working, it cuts profits, it discourages investment."
The economist, who insisted on anonymity because his group hadn't prepared a formal response to the proposal as of last Wednesday evening, said the tax increases would put pressure on businesses to continue slashing costs, instead of expanding.
"If you do that over a prolonged period of time, you tend to reduce the income and income growth, because you're cutting back jobs and not creating them."
In many analysts minds, the ultimate test of the Clinton package will be how far it goes toward reducing the federal budget deficit, which hit $290.2 billion last year and will grow, the White House projects, to $346 billion by 1997 unless taxes are raised and spending is cut.
Reducing the deficit would cut the amount of government revenue that must go to cover interest on government borrowings, and would help to hold down interest rates. That, in turn, could help boost economic growth.
Clinton proposed spending cuts totaling $253 billion over the four years between 1994 and 1997. The biggest whacks of those cuts, however, come from defense cuts predicated upon the hope that the world situation permits those reductions and upon cuts in so-called entitlements, which include large reductions in health care outlays.
"This is a very difficult package, politically, to get through," warned Shulman of Salomon Brothers. "Let's all hope we have the world that would enable these kinds of cuts."
Further, some of what Clinton labels as spending cuts aren't.
His package includes as spending cuts $21 billion, over five years, that he expects to take in by increasing the taxes upper income folks pay on their Social Security benefits. When added to the $246 billion in tax increases Clinton's package calls for, those increases raise the total to $267 billion.
He also counts in the cuts column $5.1 billion, over the same period, in increased fees charged for government services ranging from use of the Inland Waterway to grazing rights on federal lands.

by Archana Subramaniam by CNB